GST on the amount of wages, salaries, EPF/ ESI etc. amount reimbursed by the Applicant

TELANGANA STATE AUTHORITY FOR ADVANCE RULING in matter of M/s. Bhagyalakhsmi Devamma Vangimallu has ruled out that GST on the amount of wages, salaries, EPF/ ESI etc. amount reimbursed by the Applicant.

Questions raised:

Whether are not applicant is liable to pay tax on the amount of wages / salaries, EPF/ ESI etc., reimbursed by the client?

Various averments raised by applicant:

The applicant has made various averments regarding the deductibility of Wages / Salaries, EPF, ESI contribution which are reimbursed by the Hospital from the value of supply which is exigible tax under CGST/SGST Act. The contention of the applicant are abstracted as follows:

• That in the pre GST period reimbursable expenses have been held not to form gross value of service provided by the service provider and hence not assessable to tax. Reliance was placed on decision of Delhi High Court in the case of M/s. Intercontinental Consultants (2012) 12TMI150 and other Tribunal Judgments relating to service tax valuation rules.
• That value of supply to be arrived under Section 15 (1) of the CGST Act 2017 is transaction value which should be paid by the recipient. This is further qualified by two conditions that are met by applicant. The Conditions are:
  • Suppler and the recipient of the supply are not related; and
  • The price is the sole consideration of supply
• That after deducting salaries, wages, EPF, ESI , the net amount received by the applicant is taxable.

Discussions & Findings:

• In this connection it is observed that the case law relied by the applicant relates to interpretation of service tax valuation rules, enumerated in the Finance Act. The Hon’ble High Court of Delhi and later the Hon’ble Supreme Court of India discussed the applicability of Rule 5 of Service Tax Rules and Sections 66 and 67 of Finance Act of India. No general principles have been laid down for determination of value of supply on service in these Judgment which travel beyond the interpretation of these rule and related section pertaining to the pre GST Service tax.
• The applicant is not a pure agent under GST Law.
• Further the deductions available under Section 15 of the CGST Act do not include the amounts pertaining to EPF, ESI, Salary, or Wages. Therefore entire amount received from the Hospital are exigible to CGST / SGST Act 2017.